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TMI Blog2017 (9) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company did not file its return of income for AY 200910 as per the information available with the ITD system. As per the information received from DCIT, Cir.1(3), A'bad, that the assessee has received an amount of Rs. 14,85,16,000/from M/s. C.D. Integrated Services Ltd during AY 200910. As per the provisions of section 2(22)(e) of the Act, this advance is to be taxed in the hands of the assessee as deemed income as per section 2(22)(e) of the Act. On verification of the return of income filed by the assessee, it seen that no such income is offered to tax. Thus, the assessee has concealed an income to the tune Rs. 14,85,16,000/within the meaning of section 147 of the Act. On the basis of material available on records as above, I am satisfied and I have reason to believe that this is a fit case for issue of the notice u/s.148. As the assessment sought to be reopened is beyond 4 years, approval of the Pr. CIT4 A'bad has been obtained as required u/s. 151 of the Act, vide letter No.PCIT4/ HQ/151/Approval/156 dated 31.03.2016." 3. The assessee raised the objections to the notice of reopening under communication dated 19.9.2016. It was contended that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reason to believe that income chargeable to tax had escaped assessment, would apply. Since the reasons recorded by the Assessing Officer lack validity, the notice should be quashed. Our attention was drawn to the judgment of Division Bench of this Court in case of Gujarat Mall Management Company Private Limited v. Income Tax OfficerWard 2 (judgment dated 1.8.2017 in Special Civil Application No.16590/2015) in which for similar reasons the notice for reopening of the assessment was quashed. 6. On the other hand, learned counsel Shri Nitin Mehta opposed the petition contending that the return filed by the assessee was accepted without scrutiny. The question of change of opinion therefore, would not arise. The scope of reopening of the assessment would be much wider. At this stage, all that was needed was a bona fide formation of belief by the Assessing Officer that income chargeable to tax had escaped assessment. He does not have to demonstrate conclusively that the income would certainly be brought to tax. Our attention was drawn to the decision of Delhi High Court in case of Commissioner of Incometax v. National Travel Services reported in (2012) 347 ITR 305 (Delhi) in which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]." These aspects were reiterated in case of Zuari Estate Development and Investment Company Ltd.(supra). 9. Coming to the facts on hand, the Assessing Officer in the reasons recorded noted that the assessee had received an amount of Rs. 14.85 crores from M/s. C. D. Integrated Services Ltd. during the period relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(e) of the Act were satisfied, the question arose whether the payment made to the shareholders can be treated as deemed dividend under the said section in hands of the firm. Distinguishing the judgment in case of Ankitech P. Ltd.(supra), Delhi High Court observed as under : "21. If the contention of the assessee is accepted than the very object for which Section 2 (22) (e) of the Act was amended would get frustrated qua the partnership firm leading to absurd results. It is a very well established principle of construction that where the plain literal interpretation of a statutory provisions produces manifestly absurd and unjust results which could never have been intended by the Legislature, the Court must modify the language used by the Legislature or even "do some violence" to it, so as to achieve obvious intention of the Legislature. Reference is made to the decision of the Supreme Court in the Case of K.P. Varghese Vs. ITO 131 ITR 597 (SC). 22. No doubt, when Section 2 (22) (e) of the Act enacts a deeming provision, it has to be strictly construed. At the same time, it is also trite that such a deeming provision has to be taken to its logical conclusion. If the partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, the name of the partnership firm is not specifically entered as beneficial owner in the records to the depository to make partnership firm as deemed member of the concern company within the meaning of Section 41 (3) of the Act. Such a situation cannot be countenanced. 24. We are, therefore, of the opinion that for the purpose of Section 2 (22) (e) of the Act, partnership firm is to be treated as the shareholder and it is not necessary that is has to be "registered shareholder". We thus answer the questions formulated in favour of the Revenue and against the assessee as a result, this appeal is allowed setting aside the order of the Tribunal and restoring that of the Assessing Officer." 11. In case of Gopal and Sons (HUF)(supra), the question considered by the Supreme Court was whether a payment can be taxed in the hands of a HUF under section 2(22)(e) of the Act when the shareholder was a Karta of the HUF. The other conditions of the said section being satisfied, the Supreme Court observed as under : "16. In the instant case, the payment in question is made to the assessee which is a HUF. Shares are held by Shri. Gopal Kumar Sanei, who is Karta of this HUF. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving more than 20% right to receive income thereof had substantial interest in the lender company. Before the Supreme Court, decisions of this court and that of Delhi High Court in case of Ankitech P. Ltd. (supra) were not cited. Whether this decision of Supreme Court impliedly overrules all these judgements is a question we are not inclined to go into in the present petition and leave it open to be decided in an appropriate case." However, the notice for reopening was quashed in the said case on the ground that the same was issued beyond a period of four years from the end of the relevant assessment year when the original assessment was framed after scrutiny and there was no failure on part of the assessee to disclose truly and fully all material facts. 13. It can thus be seen that the issue of applicability of section 2(22)(e) of the Act when the recipient of loan or advance by the company is not a shareholder but is a concern in which the shareholders are having substantial interest, is not free from any doubt. The judgment of Delhi High Court is not accepted by the department and is in challenge before the Supreme Court. The Supreme Court itself in the later judgment in case ..... 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